Odd Lots - How To Run A Bowling Alley-Arcade-Restaurant-Bar In The Middle Of A Pandemic

Episode Date: August 17, 2020

The pandemic has been brutal for restaurants and other indoor entertainment venues. So imagine running a space that's a restaurant, a bowling alley, an arcade, and bar all in one. Our guest on this episode does just that. Adam Ozimek is the co-founder of Decades in Lancaster, Pennsylvania. He's also the chief economist at online freelance marketplace UpWork. We talked about the crisis from the micro-perspective (running the space) and the macro-perspective (what he sees in the broader economy right now). He also explained what we need from a policy perspective to save the restaurant industry right now.See omnystudio.com/listener for privacy information.

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And I'm Tracy Allaway. Tracy, you know what I think would be a really hard business to be running right now? I think you're going to have to narrow it down because I kind of feel like almost every business at the moment is pretty challenging. But what do you have in mind? Yeah, no, there are a lot of businesses are challenging. But obviously any business that's sort of like directly in the service industry, restaurants, things like that where people congregate together are pretty tough. Here in New York, you see restaurants trying to make it work with outside seating and

flexi glass between the tables and turning parking spaces and sidewalks and places to dine, but you can tell it's pretty tough. Yeah, absolutely. And you also have to contend with multiple waves. of coronavirus cases, which means that the regulations are constantly changing. So here in Hong Kong, we had restaurants that were open for a while in one way or another. And then last week, they decided to shut them all down. That lasted for about a day. And now they're reopened again, but only for takeaway after 6 p.m. So everything seems to constantly be changing. And I imagine if you're

a restaurant owner that already has very slim profit margins, it makes it really, really, really, difficult to plan ahead, buy supplies, buy food, organize, you know, waiters and waitresses, schedules, and things like that. Right. It seems brutal. There were multiple, there have been multiple instances in the U.S., of course, of lockdowns, then the lockdowns lifted, and then the lockdowns being imposed, or some partial change or some arbitrary change. I think it was, like, in New York, like Cuomo said something, like, you can serve drinks, but you have to have food, but chicken wings don't count. It's just like, it's just like, the thought of like having a business and trying to navigate this right now, it just seems excruciating.

Yeah, although you have seen some restaurants become really creative with those requirements. So I think I saw a few in New York that were serving like one chicken wing, two fries, to accompany drinks and things like that. That happened in Hong Kong as well. So yeah, interesting times if you're in the hospitality business. Now, you know it would be even harder than just running a restaurant? Go on. Running a restaurant that was also an arcade and was also a bowling ballroom. Right? Because part of the business involves a bunch of people touching stuff.

And that's not obviously really a thing. Yeah. And sharing shoes, right? How are you disintering the shoes? Right. So many questions. Well, the good news is today we have a guest who can speak exactly that because among other things, he has co-founded a bowling alley arcade bar.

and restaurant. I love it. I have so many questions about the bowling alley business model just before, or even before, I should say, the coronavirus hit. So I'm looking forward to this one. Wait, can I just say one more thing, Tracy, before we bring your guest in? Go on, go on. Do you know that I once bowled at 263, eight strikes a lot? That's a fact. Picks or it didn't happen. That's what I say. It was in high school. Otherwise, I would have had, you know, iPhone camera anyway. Anyway. A likely story. Trust me. All right. No more introduction. So today I'm very excited about guests, someone who we should have had on a long time ago, long even before coronavirus, finally get him on. He's Adam Ozimek. So as mentioned, he's the co-founder of decades, which is a bowling alley, arcade bar and restaurant in Lancaster, Pennsylvania. And he's an economist. He's the chief economist at Upwork, which is an online freelancing platform. So kind of the perfect guest to talk about. about the macro of what they're seeing in the economy, but also in the micro of how do you actually

run or try to run a business in these extraordinary times. Adam Ozimack, thank you for joining us. Thanks for having me, guys. I guess you don't have to worry about disinfecting the shoes right now, because I assume no one's bowling. People are bowling. Oh, they are bowling. They are bowling. They are socially distanced bowling. What's that like?

So we have six lanes at decades, and this means that you can bowl on every other lane. And we always have a fairly small maximum group size anyway. So that's not really a constraint. Do you disinfect the bowling balls or what happens? Are people like spraying antibacterial spray into the holes every time they come out? Yeah, we have disinfectant. We always disinfect the shoes. You know, one of the things that it might surprise people about how we're a little bit advantaged coming into this is that disinfecting was like a big part of what we did before the pandemic.

So we've always disinfected our shoes after every single use. And we've always actually had throughout the business, we have, you know, stations of hand sanitizer. They've always been there. We've got, I don't know, like five of them throughout our. So we're a pretty clean place. If you're just picturing like a regular bowling alley arcade, that's that's not a good image in your mind to hold of what decades is like. We're a fairly upscale place.

It's a kind of place where you'd be comfortable getting a cocktail and we've got chandeliers hanging. We've got nice leather couches. It's like a nice place. You're totally comfortable buying a good cocktail there. So we work hard to keep it clean and make it feel clean and we always have. So disinfecting has always been part of what we do. The only thing sort of extra we do is now we disinfect the arcade games all day long

and we disinfect bowling balls all day long. So talk to us a little bit about like, okay, what is business like pre-crisis? Like a company, a business like yours, bowling, arcade drinks, what is the sort of business model look like in normal times in terms of where you make money, where the profit opportunities are? I assume some aspects are more lost leadery than others. Like, what is just normal day-to-day, the business of running decades? Sure.

So it's really four businesses that overlap. That's the restaurant, the bar, the arcade, and the bowling alley. There's a lot of fixed cost operating all of them. so there's not really a profit margin overall per area, but you do get sort of an operating margin, and we do basically make money on all areas of the business. They're just different kinds of operating structures. So like in the restaurant,

it's a high cost of goods sold business. That means like there's a lot of materials that go into each dollar that you sell, but the upfront costs are a smaller share in that. Bowling is like a massively fixed cost. business. So like, you know, 95% of the cost of bowling is a fixed cost, which was putting in the lanes. So on the marginal dollar of bowling, you have really high margins. And the same thing is true of Arcade. You have the big cost of machines. You have the cost of tokens. You have

maintenance and repair costs, but those are relatively minor. The arcade is that a high margin business too. And the good news about high margin businesses is you can afford to do all sorts of discounts on them to make them into lost leaders if you have nights of the week where you want to, you know, if you have like a lower capacity night of the week, you can do something like everybody who comes in automatically gets $2 of free tokens. When you're in the food business and the restaurant business, if you want to offer discounts, it's really easy to get into, you know, actually losing money on a loss leader. But with bowling and arcade, it's all opportunity cost.

It's really hard to lose a dollar when someone bowls. It costs you almost nothing to let them bowl. Same thing for the arcades. This is something I always wondered, given that there are so many different businesses involved in something like a bowling alley that also serves food and drinks and has video games as well. But what's the best deal for a customer?

Would it be just going there to bowl and not buying food or drink, or would it be going there to buy food or drink because the cost of food and drink is subsidized by the bowling alley? I know it changes all the time, but I'm just curious whether there's one thing that kind of stands out to you. So it's definitely, you know, you can find specials throughout the week. If you want a bowl, it's cheaper to bowl on like a night of the week when we're doing a special or an arcade game we're doing a special. So in that sense, you know, if you're talking calls, cost minimization, you know, coming outside of peak hours is going to be the best way to do it. It can be pretty busy on the weekends.

So if you want to make sure you can play your games and, you know, on like Saturday night, you know, you have to get there kind of early to get signed up to bowl because it gets pretty busy because we only have six lanes. So from a cost minimization perspective and a queuing perspective, the slower days of the week are your better odds. But, you know, to put on my economist hat, the real value is not determined by the costs, the inputs. to you, the value is how much you get out of it. So in my mind, you know, the whole sort of experience, it's a great full, complete evening. So I like the total package. You come in, you play games, you bowl. It's an entire evening. There's a lot of stuff you can do with your friends. So it's sort of irrelevant to the consumer, what the relative costs are, right? You're looking at what's

your consumer surplus from. And it's true, you can save money by bowling on a, you know, Tuesday night for example, but your friends might not be able to go out on a Tuesday night. There's a reason we all sort of gather at specific times, right? You mentioned the ability to give out tokens, maybe $2 worth of tokens, if you want to come in on a night that's typically less busy, perhaps turning the arcade into something of a loss leader, to drive food sales. But I'm curious about the token aspect specifically in part because there is this nationwide coin shortage. So does that mean you guys just don't have to worry about the coin shortage right now?

You have plenty of tokens. That's right. We don't have to worry about the coin shortage right now. But that's because of lessons learned about coin shortages. And we get our own coins minted. They say decades on them. They have a nice little picture on them of our logo. Did you design the coin?

My partner, Jonathan, did. One of my partners is that he's an artist and designer and marketing guy. and he designed the coin. It looked great. We did have a coin shortage early on. So we ordered what we thought, you know, speaking with the token people are used to dealing with arcades. And, you know, we have also our, the person we buy our arcade games from, who has a lot of arcade experience. And we talked to both of them. We got an idea, this is how many coins you should have for an arcade of your size. But demand was so strong at first. The, velocity of spending, we couldn't keep up with it. We didn't have nearly enough tokens. And it

took us actually like months to get caught up to the amount of tokens that we should have because it takes a while to mint them. There's a backlog. And also you're sort of in denial about how much you need to spend on tokens. Because you think about it is like, well, we're going to spend this little bit up front and that'll be it for tokens. But people walk away with tokens. Fine, because you think they're going to bring them back eventually. And even if they're, you know, they don't, it costs less than a token, less than a quarter to make a token. So like, someone buys $100 worth of tokens and throws them in the trash, we make money on that. We don't make as money as if they gave them back to us, but we still make money on it. But when we first

opened up, we had just this massive coin shortage. And what it required was constant, constant emptying of the arcade games. If you have your token level set correctly, you shouldn't have to undo your games throughout the night. Maybe once or twice on like a Saturday if you're really busy. But they're big, you know, they have big containers on them. They're meant to be filled up with the days worth of usage. You shouldn't have to empty them. But when we opened to keep the supply of coins moving, we had to be constantly emptying.

And this was actually, I was doing this a lot. I don't actually work there. I'm, you know, a partner, but I don't like take salary. I don't have a job there. But I was, for our first opening weeks and weekends, I was there on, like, our busiest times wearing the decade shirt, looking like a staff member, going around, emptying the ski ball machines, the hoops machines, and just emptying the tokens and keeping them moving basically all night long. So that's the cost of a coin shortage. You have to interject yourself into the arcade economy and keep them moving. can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris. And I'm Karen

Moscow here to tell you about our new on-demand news report delivered right to your podcast feed. Bloomberg News Now is a short five-minute audio report on the day's top stories. Episodes are published throughout the day with the latest information and data to keep you informed. Yes, there are other products like this from a variety of news organizations, but they usually rerun their radio newscasts throughout the day. That's not what we do. We create customized episodes that can only be heard on Bloomberg News Now. And we don't wait an hour to publish Breaking News.

When news breaks, we'll have an episode up in your podcast feed within minutes. So you're always getting the latest stories and developments. Get the reporting and the context from Bloomberg's 3,000 journalists and analysts we're all over the world. Listen to the latest from Bloomberg News Now on Apple, Spotify, or anywhere you listen. Okay, so we've talked a little bit about what the business looks like in normal times and tokens specifically. Can you walk us through what sort of impact you've seen from the coronavirus crisis and also the changes that you've made to the business to adapt to the new normal? Sure.

So the coronavirus, we shut down maybe like a day or two before the state ordered us to. We just decided it was, this is a really tough challenge because you want to be a responsible member of your community when you see this risk. But there's sort of like a prisoner's dilemma type problem here where if all the well-behaved restaurants closed down, like, you know, this is an early, early days of the pandemic, like the beginning of March, the problem we were dealing with is, you know, if you, if half the restaurants close down, but people don't really change their behavior that much. All you're going to end up with is the rest of the restaurants are just double-crouting. And so this is why you really, really need, like, the government to step in, and you can't just rely on businesses to do the shutdowns themselves, because if there's, like, one jerk bar in town that is never going to close unless you make them, then that place, all the people who don't care about safety are just going to pile into that place,

and it's just going to be way worse off than if everything sort of stayed open. So that's the sort of tension you face. Like, do we shut down and just like let the bars who are not safe, like absorb all the customers, or do you wait? And so we waited until things were getting worse in the virus coming up. We thought, okay, other people are starting to shut down. It's time to do that. So we shut down and then a few days later, the state shut everyone down.

Obviously from then it was like nothing. happened for a while. So we were closed for March and then in I think April or May we started opening takeout. Because at first, you know, everyone, you didn't know how safe anything was. You know, some places started doing takeout right away, but we weren't entirely sure, you know, is takeout safe? And once it sort of became clear that it was, that's when we started offering takeout. And so that helped a little bit. And this was close to the time where we got our PPP loan as well. So start with takeout. That opens up a little bit. And then, so that was May. And then June, we were able to open up our front yard, which was something we actually just put into

place. So that's one of the, those are both adaptations. But prior, we did a little bit of takeout, but it was like not, not really a part of our business. Is that something we really, really advertised that much or focused on. So switching to more takeout focus, changing the menu to be better adapted to takeout, and then turning our front lawn, which had previously just been a lawn into outdoor seating area. I have some like very sort of quick specific questions. But the first one is, do you mention that you closed decades prior to the state shutting it down? In those days before you closed down, how fast was, were you? you already seeing a business drop off? Empirical research is pretty clear on this. Yeah. And we could see

this from like day one, which was that demand fell off before the shutdowns happened. So I think like the weekend before the shutdown, we were down like, I believe it was 50% or something like that. So it was it was a big drop off and the drop off definitely preceded any sort of government action. And then early on, when you were trying to, when you started first doing the takeout business, like the first sort of, okay, let's start getting some revenue again, but try to do it safely, what were like the impediments, how anxious were you about having people go back into a commercial kitchen? What were the difficulties in terms of acquiring PPE, protective equipment, and so forth, so that you could sort of start rebuilding the operation,

a little bit in a safe way of that day? You mean, that was sort of one of the considerations was just how does safe does everyone feel? You know, we're going to need the managing partners. So two of my partners work decades, whole time was their job. And, you know, between them and the other managers and the essential staff, it was like sort of had to wait to feel to everyone was kind of feeling kind of safe. And they were feeling safe about it and the public was feeling safe.

about it and it took some time but you know some more stories came out that you know we're just can't really spread this thing by touching surfaces that was a that was a big help in terms of making everyone feel comfortable so it did take a little time that wasn't any sort of like you know it wasn't like a daily vote or anything like that it was just sort of you know being communication with each other and seeing when everyone kind of felt safe and when it seemed like it seemed like customers were feeling safe too. So with PPE, actually my in-laws, they have a shoe factory in Pennsylvania, and they switched to making masks. So we were able to get masks pretty easy, pretty early. It was cloth masks, but we were able to get them directly from them. So we had that

covered. What was it like applying for? a PPP loan? So we applied for the PPP loan pretty early. And we have a really great relationship with the local bank. It was actually a bank that the Trump administration praised for how well they were doing Orestown Bank. So it's like a regional northeastern bank. And we have a great relationship with them. And so we were able to get approved pretty quickly.

But they had told us from the start that we could delay. closing the loan. So basically you apply, you get approved, and then there's like paperwork, and then you close the loan. And when you close the loan, that's when you get the money. And because of the nature of PPP, actually it creates this paradox where like it's underfunded, but as soon as you get it, your forgiveness period starts. So you want to get it approved as fast as possible, but then you want to get the money as late as possible. So we were, you know, this is, in early April when PPP you would start applying and we were like not opened at all for anything in early April.

So the forgiveness period to start for us would have been pointless because we're not going to bring our staff back and just have them sit on their hands. I mean, we would if we had to because forgiveness is better than no forgiveness. But it would be way more useful to us to be able to bring them back, have their salaries covered when we needed their labor. And you're not going to bring everyone back for eight weeks when at the end of those eight weeks, you don't know what demand is going to look like. Because then you either, if you run out of time, and the way the PPP policy initially worked was you had to have everyone fully staffed at June 30th.

So if you get your loan in April, beginning of April, you bring all your staff back. You get your eight weeks where the salary is covered. And then there's this gap between there and June 30th where you have to maintain your staff on your own dime, even if you're closed. So you run the risk of like, great, we got eight weeks of free pay, but we didn't make any money because no one could do any actual work. And then at the end of those eight weeks, we still have to keep the staff on, even though no one can do any actual work. And it'd be very easy to run out for the PPP to actually turn into a loss for you if you did it this way. So it's this huge paradox of PPP that it's, you know, create, as initially structured, it creates risks for the businesses who are, you know,

the most uncertain about their near-term future. So basically, we walked away from PPP. We had a loan and they said initially they were like, you can close it whenever you want, but then the Trump administration or the SPA, whoever made the rule, said, you know, you need to, within 48 hours of getting proved, you need to close your loan. So they were, I guess other people were trying to sort of delay too. And they said, no, no, no, we need to get this money out. So the bank said, close your loan in the next 24 hours. So something like the next 48 hours. And we said, okay, we're just, we're going to walk away. We're going to take the gamble that we'll be able to get a PPP later and, you know, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, and, it look

like the PPP funding was going to run out again. And we were like, okay, I don't know if they're going to refill it again. And this was like after the PPP was initially refunded and the money just rushed out the door instantly again, we're like, okay, you know, now we need to do it. So we reapplied and we got our PPP. And this time it was sort of more useful because we were ready to start doing takeout. We could cover salaries of people doing takeout. So it was really, I mean, they loosened the regulations as,

it went and they eventually sort of made it easier to reduce the uncertainty and reduce the risk that you're going to rehire everyone and then get stuck holding all these employees that you can't actually use or try to rehire everyone and you fail and then you lose your forgiveness. It was really risky at first. They sort of, as we've gone along, they've made things easier. But in those early weeks when the strict rules were in place and you don't know what's happening, a lot of uncertainty. Super interesting. So, I mean, this is all fascinating stuff. I hadn't realized that about that dynamic of not wanting to take the money right away, but of course it makes sense. So I guess in the sort of ideal scenario, the move would have been to have unemployment insurance

cover the salary of your staff, which you're forced to let go while business is shut down, and then use the money to sort of rehire them as demand is ramping back up. How does rent, or I don't know, I assume you rent your land, how does that work and how has that, what kind of negotiations have you had with your landlord or whoever, I'm not exactly sure your situation is, but how does that aspect of the business? We have a landlord. He's some local entrepreneurs that we know that are in the building, and they're great guys. They're small business owners, too.

And so this is where, you know, when people talk about solutions to the problem of rent, and they're like, well, let's just, you know, pass a law that says you don't have to pay your rent. To me, I find that crazy because I know, I know that our landlords are in, you know, a similar situation as us. They own a revenue producing asset. They have debt on that asset that they need to cover. And, you know, they have their own liquidity challenges as well. So there's no just like ability for them to just be like, that's fine.

You don't owe us money anymore for the next year or something like that. They can't do that. You know, they need the money to pay the debt. So we did approach them. And actually, the first person we approached was our bank to just ask for a delay in payment. And they gave us that pretty quickly. They gave us three months off, which was great. It sort of shows the value of, you know, local banks.

banks that are really understand the local community, the local economy, and are willing to work with with companies who they know are viable, whereas like a bigger bank might just be stuck with these are the rules from corporate, you know. So they gave us the three months loan forgiveness. Landlords cut our rent in half for a few months. So, you know, they work with us there. So those were both things that helped. But it is, you know, it's, it's a 16,000 square foot building. So it costs a lot of money to fit it out and it costs a lot of money to rent it. So even, even if you cut the rent in half, that's helpful, but it's still a lot of money, a lot of fixed costs. And then given the nature of the pandemic, three months of delayed, rental, delayed

debt payments actually turn out to not get you all that far. So we have, We still have the struggle of making these massive fixed costs every month. We got help for the early stages of it, including with PPP, but then, you know, as things go on and PPP's, you know, money is gone. And, you know, the bank and the landlord have done what they can, but they can't, they can't give you a year's worth of help. It's sort of that second wave of the virus is sort of mirrored in a second wave of economic challenges for a lot of small. businesses, I think. I'm just curious, with your, with your sort of hospitality business hat on plus your economics hat on, how would you have designed a program to help American businesses in the

current situation? What would you like to have seen done? So I think that the right way to help businesses is to not try to help workers in businesses of one policy. We're dealing with a, once in a lifetime economic challenge. It's something that government has never had to do before and they're having to spin up all these brand new programs and deal with economic challenges that's just they're not part of the normal toolkit. And to try to not only prevent a wave of a massive wave of small business failures and also get them to preserve their employees. it struck me from the beginning as something of a bank shot. You know what I mean? Like you're

already shooting from the half court and you want to do like a trick shot with it. Like it's just one thing at a time I really thought would have been a better way to do this. So you know, let the workers rely on UI and give a program to businesses that actually gives them flexibility and help and lets them, you know, just focus on trying to avoid the massive wave of failures. So the proposal that I actually put out with John Laetieri of the Economic Innovation Group, we did put out a small business plan. And what we suggested was give businesses large, zero percent interest, long-term loans. And this would be, I think it's more optimally targeted for helping those who can survive,

survive, and also lowering operating costs basically forever. So it's not just a short term. We're just going to shovel cash into you until the problem goes away. I think there's a lot of problems with structuring a policy like that. This is we're going to give you, we're going to let you refinance your debt so that your debt costs are lower. We're going to give you capital to purchase a loan big enough that you can purchase occupied real estate, purchase any capital investments you need to make, rebuild your working capital, and then pay for it. at zero interest over a 20 to 30 year term.

So those fixed costs, those operating costs that are so killer for businesses right now, that pushes all of those down significantly. And it means that you don't just get help this month, next month. You get help from now on. Every month your operating costs, you'll lower. And that really gives you an incentive to sort of stick it out, you know, until we get back to normal. it makes you viable at lower levels of demand in perpetuity.

That's to me key because we don't know how long this is going to last. And you cannot count on the government simply restarting whatever cash assistance program runs out if the virus goes on longer than it thought. And it has. So my focus was like, let's lower operating expenditures and keep them low. So that no matter how long this goes on, you've improved the viability of businesses. you've given them sort of, you know, the ability to weather longer challenges. So that's my, that was my policy proposal with John. And it's actually, it's part of the Rubio Collins bill now.

It's right now it's targeted at low-income communities only, low-income census tracts only. But our hoping is that that gets sort of negotiated up to apply to everyone. I'm Francine Lacqua, an award-winning journalist. And I've got a new podcast, leaders with Francine Lacqua from Bloomberg Podcasts. I've interviewed everyone from heads of state to fashion icons about the news of the moment. But I've always been curious who are these people as leaders. I don't think there's one right way to be a leader. Make decisions. A poor decision is always better than no decision.

Listen to new episodes every other Monday. Follow leaders with Francine Lacroix wherever you get your podcasts. Speaking of issues in the forthcoming bill and now we're pointing out, we're recording this August 4th. 2020. We don't know what's going to happen with the bill in the days ahead. But one of the, obviously, most contentious issues, and it's a place where macro really moves micro is the expanded unemployment insurance, workers getting an extra $600 a week. Many economists say that this is necessary to maintain demand and just also allow households operate. Others say it's a disincentive to work.

Have you had any issues with that? Have you had any difficulty bringing back workers now that as you throughout the reopening process due to the UI expansion? There's a slight divide where in general, the back of the house people, kitchen staff want to be back more than the front of the house staff do. The front of the house staff sort of relies more on tips and stuff where that's, you know, not as strong right now. So there's a little divide and it's certainly not the case that every single employee is banging on our door to get as many hours as they could. So you sort of feel to that extent, but it's just not, it's just not a binding constraint. And, you know, I think it's important to be realistic about this. And you have to acknowledge that people are making more than they

did before. And so obviously, this is going to make some people not eager to come back to work. And obviously, there are going to be examples where someone tries to hire back or bring back a key employee and they don't, they don't come back. They don't want to come back. They prefer to stay on employment. You can make a full-throated case for the expanded unemployment while recognizing that this situation does occur. I think it's important to do that because if you try to tell people, no, no one's, no one wants to stay home and make more money. It's just they don't believe it. It's like it undermines the case. So start from there. Admit that it is happening, but it's just not that important right now. It's not a binding constraint. If you ask restaurants,

you know, how would you rank the importance of lower demand because people are afraid of the virus versus you can't bring your employees back? Anyone who says that not being able to bring their employees back is the biggest problem right now, they're doing great. They're doing great. And they're not the nexus of the economic damage right now. So if someone says to you, like, I could be doing so much better, I just can't hire enough workers back.

They're not indicative of the actual problems that we're fine. facing right now. We're not, there's, there's 20 million lost jobs and there's five million job openings. So it's not a binding constraint right now. The constraint is demand and that is going to be the constraint for some time. So, but the good news is, you know, you don't have to actually weigh these things against each other, the macro demand problem. And obviously the unemployment spending helps the demand problem. It puts cash in the money. It helps households keep their spending up, you don't have to weigh that against the disincentives. It's very easy to structure the program so that if you get rehired, you take your $600 with you for some time. Everyone wins.

Just on the topic of demand, I'm curious how you see that going forward. Do you expect a full recovery if the coronavirus suddenly goes away, either because of a vaccine or because of something else, or do you see the hospitality industry sort of irreparably changed because of all this? And secondly, is there anything that you could see the authorities actually doing in order to boost demand? So on the demand side, once the virus is gone, I don't really see any challenges for the hospitality industry. People, when they see a structural change in the economy happening, it's not simply a matter of boosting the demand. but there's like some deeper change in consumer behavior or like industrial structure. They tend to put on there, there's nothing we can do and this industry's ruined hats.

I think the reason is because we saw this with manufacturing. And that's been like the biggest example of structural change that we've seen. And the last two recessions excluding this one, what we saw was manufacturing like dropped off a cliff and never recovered. You know, the same thing happened to construction in 2008. It dropped off a cliff and then it took like years and years and years to recover. And so I think people started getting their heads that like when you have a recession and there is an industry that's more hit than others in that recession, there's like a hopelessness to that. And there's like a necessarily long term adjustment to that. And I truly don't think that's the case with leisure and hospitality.

the reason being manufacturing job losses were going to happen. There was like a global realignment of manufacturing production that was coming. And the recession is what ushered it in. And so once it ushered it in, there's really kind of no rebuilding that. There's no bringing it back. Leisure and hospitality has been growing as a share of employment for basically 80 years. If you look at the time series of the share of workers who are employed in leisure and hospitality, basically since the end of World War II up through February of 2020, it's a straight line

increasing up. So the share has gone up over time and it's very steady. It's one of the steadiest time series about the U.S. economy you'll see. And the reason is because as people get richer and they do over time, they spend more on leisure and hospitality. They spend more in eating out, less on eating home. This is like the steadiest long run trend about the labor market or about. the economy that there is. So I don't see that going away. I don't see how the world we come back

to when we have a vaccine, everything safe again, is different than the world that we left, which is over time people spend more on going out. They spend more in entertainment. They spend more on restaurants and they do this every single year for almost a century. So I'm bullish on the demand side return. What I worry about is if we don't help companies in this industry so that when the demand comes back, they're there to hire, we're going to have something that looks like the recovery from the Great Recession, because it takes a lot longer to create new jobs in the millions than it does to bring people back to their old employers in the millions. It's going to take so much time, especially when the interest rates are

zero or lower bound. It's going to be making new jobs takes time. So I think if we, if we, if If we help to preserve as many businesses in this sector as makes economic sense, if we can structure efficient policies that carry them through this, we can have a relatively quick bounce back because they'll be ready to rehire and the demand will be there. If we don't do that and we let basically a generation of entrepreneurs in this sector, if we let their credit and their businesses be wiped out and the banks who loaned to them see those loans go bad and the landlords who rented space to them enter bankruptcy and lose their buildings, you wipe out real intangible capital knowledge there.

That is the credit, entrepreneurship, and knowledge of these people. And I just, when you combine that with the economy trying to reallocate back towards growth in this sector, to me, that's just a recipe for a very slow, very bad recovery. So my hope is that we're going to make sure that those businesses are there for that reallocation back to the normal economy. I want to talk a little bit more soon about some of the other broader ego issues, including some of your work on the trend of working from home because that does seem like an area of change. But just before we go to that real quickly, one other business running question. Your business today, so you mentioned you have bowling, but it's spaced apart. You have some operations in the lawn today, August 4th.

How close are you to sort of having a normal, sustainable, viable business? And how long is it a, how long of a holiday you have to get back? I just don't see any return to normal until the, until the virus has gone based on what we've seen. You know, we don't have a massive surge in this area in Pennsylvania. You know, Governor Wolf has been pretty aggressive. It's not fully normal here, but it's a lot closer than normal than a lot of other places in the country. And it's just not, it's not even close to normal. Where, you know, July was like 23% of the normal month.

So it's a long way to go. And, you know, I just don't, I don't think we're going to get to normal until the virus is going, basically. And then just on the stimulus that they're debating right now, you mentioned your proposal in terms of refinancing long-term debt, reducing costs and so forth. What other priorities do you think lawmakers need to understand for this round to prevent what you identified as the risk of sort of a generation of small business, entrepreneurs, getting wiped out permanently damaging the supply side part of the set? Yeah, I think our plan is the best for it, the best fit for it, expanded.

But that's just, you know, in order to prevent the really slow, massive recession recovery, you know, small businesses are just one group that needs to be helped. You also have got to take care of households with the continued expanded unemployment insurance. You've got to take care of state and local government with some relief money there. So it's really, you can't just help small businesses, but I think that to help small businesses, what we've proposed is really the best fit for. the challenge going forward. So just to shit gears for a second, and we haven't really talked about it much, but you're the chief economist at Upwork, an online freelancing platform. You've done a lot of work on what everyone thinks is a big topic,

which is the sort of future work, work from home. And it does seem like an area where potentially we might see a meaningful change in how the world works. So you're pretty bullish on work from home, and you think that some of these patterns will persist. Why is that? Well, I was bullish on work from home before the pandemic hit. So when I started at Upwork last year, one of the first big projects I did was around remote work

and how remote work has been affecting the economy so far. This issue was on my agenda and was a major research topic for me, obviously working at a company that helps connect people to remote professionals all over the world. This is a very important topic already. So the bullishness sort of predates the, pandemic. And the truth is that every year for the last decade, we've seen the share of people working remote go up. So it was a structural trend already. It was already increasing. It was going to continue increasing. And all the economics sort of favored that. But after, I think, it's

happening even faster. And what I think has happened is firms, firms have been forced into an experiment. And for whatever reason, they hadn't made that leap before. a lot of them are now learning that it's going better than they thought it would. So we did a survey at Upwork where we asked hiring managers as part of our future workforce report. We asked 500 hiring managers how the remote work experiment's been going. And 56% said it's been going better than expected. And only one out of 10 said it's going worse than expected. So this is a very, I think, precisely useful way to frame the question because it's not, is it good or bad?

but are you learning positive things about it? And I think this sort of helps explain why all these companies who it seems to be working well for, why didn't they do it before? Because they didn't know how well it was going to work. And there was sort of risk in trying. And now that they've been forced to try, they're seeing it's working well. And I think that that really bodes well for future hiring. We also, what's nice about our surveys, we actually had run this survey in November 2019.

we ask all these questions about what you're going to do regarding remote work hiring over the next five years. And then COVID happened and we're like, well, let's run the survey again. So we ran it in April. So we really have a pre and post COVID comparison of hiring plans. And what we've seen is that five year remote work hiring plans basically doubled. So however many remote workers, companies were going to hire over the next five years, they're now planning on doing twice that amount. So that's significant.

I don't know exactly where we're going to end up in terms of the percent of the workforce that's remote, but I think it doesn't take a whole lot to make a very big difference. And I think that it's a serious structural change, to put it that way. All right. Adam, it was great to have you on. It's crazy we hadn't had you on the podcast before, but I feel like this is a perfect moment for it. And I really appreciate you joining it.

Yeah, definitely. It was a lot of fun. see what anytime. Thanks, Adam. Tracy, I thought Adam was like the perfect guest for this moment. Like hearing him just described the mechanics of closing and reopening and getting the PPP loan and everything else is like learned a comfortable. Yeah, I found his discussion of the PPP loan quite interesting specifically.

I hadn't thought like of all the considerations that go into it and the sort of like game theory involved in it. Yeah. Yeah. especially like not knowing if it was going to run out. Like if you know that there's plenty of money out there and that the pot will never run out, then you're like, okay, then we'll apply for the loan or you activate it when you actually are going to have something to do with the money. But in the beginning, we didn't know that. It also sort of speaks to how counterproductive that it was capped in the first place. I mean, like, makes sense, I guess that they had a cap for company,

but it sort of shows how I guess there was a negative effect of making it seem like the the basket was finite overall because then people had to worry about timing, whereas if it had just been sort of unlimited, you wouldn't have the same issue. Also, his point about how he would have designed some sort of stimulus program to help American businesses, that was interesting as well. Like the idea of designing something that would be permanently beneficial rather than something that helps in the interim for a very specific period. To your point, just then, like the PPP,

only helps for for a little while until it runs out. And then you have to keep continuously reactivating that, reactivating the extra $600 in unemployment paychecks. It feels like, I mean, I realize policymakers are under extreme time pressure at the moment. But it feels like if people sat back and thought about it, you could perhaps come up with something that would be beneficial in the long term. Well, they've had like four months since the last one. So you would have hoped that they would have used this time for the next round to do something a little bit more sophisticated, but it's unclear what all that time really helped. But I did think also his point about, you know, the sort of one-size-fits-sol of the approach. Like was PPP about keeping on

payrolls and thus helping businesses and workers? Was it just about sort of keeping the businesses alive and in a position to reopen while the workers went on unemployment insurance. I don't think there was ever, like, completely clear what the vision was. And I think that sort of made it a bit hard to evaluate the success of the program, because if it's from a sort of payroll's perspective, then, you know, obviously unemployment is still sky high. If it's about just the business is being in a position to operate when the virus goes away, maybe it's better, although a lot of businesses, unfortunately, are closing permanently.

So without a clear goal of the program, it's a little bit hard to know whether in the end it will have been successful. Yeah. Oh, you know what? The other thing I thought was really interesting, which had nothing to do with the virus, was the whole idea of using. Yeah, tokens, but also using the arcade games and bowling, which have really, you know, low cost of goods sold as a potential loss leader, being able to change. the price on that to bring people in for the food. I thought that was super interesting. It's something I'd never thought about before with these sort of mixed, mixed restaurants that involve amusement and food. Yeah, absolutely. I mean, so I know Adam was quite positive on the restaurant

business model in the future. He said that once the virus goes away, he sees this as a sort of long-term trend that is staying with us for the foreseeable future. But I do think one thing that's interesting from the coronavirus crisis is that you are seeing some restaurants and businesses make these really creative tweaks to their existing business model. So that's an interesting one to watch. And in places like New York, I know there's discussions now about whether or not things will ever go back to normal. People want to keep the option of getting things like take away cocktails, stuff like that. So you wonder whether or not these kind of tweaks are going to be sticking around for a long time.

Totally. We should have asked about that because on the decade's Instagram, they sell these cocktail pouches and they also sell these giant pretzels that they were doing for takeout. So all kinds of interesting questions. Could have also asked about what do you think about the sort of third-party delivery companies.

Anyway, plenty to talk about it. Next time, next time. All right. This has been another episode of the Allthots podcast. I'm Tracy Alloway. You can follow me on Twitter. at Tracy Holloway. And I'm Joe Wisenthal.

You can follow me on Twitter at the stalwart. And you should follow our guest on Twitter, Adam Ozemeck. Great follow. Just found out of use interesting information. He's at modeled behavior. Follow him on Twitter. Follow our producer on Twitter,

Laura Carlson, at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today. And check out all of our podcasts at Bloomberg under the handle at podcast. Thanks for listening. This is Tom Keen, inviting you to join us for the Bloomberg Surveillance Podcast. It's about making you smarter every business day.

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